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El Salvador’s Bitcoin Law

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Three U.S. Senators have suggested a measure that would commission a detailed analysis on the inner workings of El Salvador’s Bitcoin Law, as well as a risk mitigation plan. In the United States Senate, a bipartisan group of senators filed legislation to address potential hazards associated with El Salvador’s adoption of Bitcoin as a legal tender.

The proposed Accountability for Cryptocurrency in El Salvador Act (ACES) aims to “minimize possible vulnerabilities to the United States financial system,” such as money laundering and terrorism funding. “Recognizing Bitcoin as official currency opens the door for money laundering cartels and undermines U.S. interests,” Senator Cassidy wrote.

If the bill passes, it will give federal agencies 60 days to submit a report evaluating the Central American country’s cybersecurity and financial stability capabilities.

The first section of the report will look at how El Salvador developed and implemented the Bitcoin Law, how it will “mitigate the financial integrity and cyber security risks” posed by virtual assets, whether it complies with Financial Action Task Force (FATF) requirements.

In June 2021, El Salvador’s government passed the Bitcoin Law. As a result, Bitcoin (BTC) became a legal tender, requiring companies to accept it as payment.

On Thursday morning, Bitcoin was trading below $44,000, having given up some of its previous day’s gains.

Bitcoin had gained ground in three of the previous four days heading into Thursday. Bitcoin has gained more than 14% month-to-date but is down more than 4% year-to-date. The FSB claimed in a report that big banks and hedge funds, and derivatives that reference cryptoassets in complicated investment schemes are getting more active.

The fear is that financial stability concerns will rapidly worsen, emphasizing the need to assess potential policy solutions proactively. Regulators are concerned about the implications of a crypto assets catastrophe on the banking sector as a whole.

The FSB does not have the authority to enforce binding rules, but its members agree to translate agreed-upon principles into national regulations.

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